DOC PREVIEW
PSU ACCTG 211 - The Accounting Equation

This preview shows page 1 out of 3 pages.

Save
View full document
View full document
Premium Document
Do you want full access? Go Premium and unlock all 3 pages.
Access to all documents
Download any document
Ad free experience
Premium Document
Do you want full access? Go Premium and unlock all 3 pages.
Access to all documents
Download any document
Ad free experience

Unformatted text preview:

ACCTG 211 1st Edition Lecture 2Outline of Last Lecture I. Accounting is the language of businessII. Instructors and office hour informationIII. How to succeed in the courseOutline of Current LectureI. The accounting equation II. Four Basic Financial Statementsa. Income Statementb. Statement of Changes in Shareholders’ Equityc. Balance Sheetd. Statement of Cash FlowsIII. Examples of How different transactions affect the accounting equationCurrent Lecture II. The Accounting Equationa. Assets = Liabilities + Shareholders’ Equityb. Assets are owned (GAAP: “probable future benefit”)c. Liabilities are owed (GAAP: “probable future sacrifice of resources”)d. Shareholders’ Equity is the “residual” or leftover amount when assets are used to pay off liabilities (A - L = E)i. Can be things like dividends, expenses, retained earnings etc…ii. Each of these items will fall into the TWO categories of Shareholder’s Equity1. Contributed Capital (common stock: CS)2. Earned Capital (retained earnings: RE) III. Four Basic Financial Statements used in accountinga. Income Statementb. Statement of Changes in Shareholders’ Equityi. I will shorten a bit to “Statement of Shareholders’ Equity”ii. Sometimes called “Statement of Stockholders’ Equity”c. Balance Sheeti. Only financial statement that shows the current status AT a certain point in time rather than over a financial periodd. Statement of Cash FlowsThese notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.IV. Income Statementa. Revenues – Expenses= Net Incomeb. If revenues > expenses, Net Income resultsc. If revenues < expenses, Net Loss resultsd. Net Income is the link between the income statement and the statement of changes in Shareholder’s EquityV. Statement of Shareholders’ Equitya. Contributed Capital and Earned Capital = Total Shareholders’ Equityb. Beginning Contributed CapitaL+ New Contributed Capital= Ending CCc. Beginning Retained Earnings+ Net Income– Dividends= Ending Retained Earningsd. Total Shareholders’ Equity is the link between the Statement of Shareholders’ Equity and the Balance SheetVI. Balance Sheeta. Total Assets = Total Liabilities + Total Shareholders’ Equityb. This is the Accounting Equationc. Total Shareholders’ Equity comes from the Statement of Shareholders’ Equity.VII. Statement of Cash Flowsa. Total Cash from Operating Activities (Income Statement)+ Total Cash from Investing Activities (Long-Term Assets)+ Total Cash from Financing Activities(Long-Term Liabilities and Equity)= Net Change in Cash+ Beginning Cash= Ending Cashb. Statement of Cash Flows is basically a way of adding up the different expenditures and money earned of a company to see how cash moves and get the ending cash balance. VIII. Let’s see how different examples of activities can affect the balance sheet. Remember the accounting equation must remain true. a. Tom contributes $5,000 of his own money to start the business.i. Increase $5,000 to cash (assets) ii. Increase $5000 to contributed capital (stockholder’s equity)b. Tom’s companyborrows $500 from Tom’s mom.i. Increase $500 in cashii. Increase $500 in notes payable (liability)c. Tom’s companybuys 100 T-shirts for $400 cash.i. Decrease in cash ii. Increase in inventory (asset)d. Tom’s companypays $50 for advertising.i. Decrease in cash ii. Increase in advertising expense which decreases stockholder’s equitye. Tom’s Wear sells 90 of the T-shirts to friends for cash, $10 each.i. Increases of $900 in cashii. Increase of $900 in sales revenue (stockholder’s equity)iii. BUT Tom paid $4 per shirt so let’s take that into account1. Inventory decreases by $3602. Cost of Goods Sold is $360 (shown as -360 on the balance sheet)iv. Tom’s companyrepays the debt of $500 plus $5 interest. 1. Cash decreases by $5052. Notes Payable decreases by $5003. Interest expense of $5 (stockholder’s equityI. Tom’s companypays a dividend of $100. a. Cash decreases by $100b. Stockholder’s equity decreases by $100 (retained


View Full Document

PSU ACCTG 211 - The Accounting Equation

Download The Accounting Equation
Our administrator received your request to download this document. We will send you the file to your email shortly.
Loading Unlocking...
Login

Join to view The Accounting Equation and access 3M+ class-specific study document.

or
We will never post anything without your permission.
Don't have an account?
Sign Up

Join to view The Accounting Equation 2 2 and access 3M+ class-specific study document.

or

By creating an account you agree to our Privacy Policy and Terms Of Use

Already a member?